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Global Trustee and Fiduciary Services News and Views
| Issue 48 | 2017
53
Challenge for all
Banks, investment funds, family offices,
insurance companies, holding companies,
service providers and the rest all face a daily
battle to comply with KYC and anti-money
laundering and counter-terrorist financing (AML
and CTF) duties and assure themselves that
clients are not using the financial system for
illegal activities. Making a mistake in judgement
or having lax procedures in place could lead a
corporation to founder.
KYC regulations also make it harder and more
expensive to serve clients, the vast majority
of whom have no criminal intentions. It is
frustrating for clients and sales teams that
a range of identity documents are required
when onboarding each new customer. This
time-consuming, labour-intensive process
is complex and prone to error, particularly
in a major international financial centre like
Luxembourg with clients from across the globe.
Waste = potential savings
It is ironic that many investment funds have to
make the same checks on the same clients. Often
this results in each of the counterparties having to
supply the same information several times. These
would include, among other information, proofs
of identity and addresses for individuals and
certificates of incorporation and memorandums of
association for corporates. By way of illustration of
the complexity and cost, more than 60 documents
and data points can be required by asset
managers related to KYC for each investor.
The good news is that where there is waste,
savings can be made. For example, a recent
report by Deloitte pointed to the potential for
cutting EUR180 million in costs by correcting
inefficiencies in KYC handling and due diligence.
1
KYC utility: a game changer
A mutualised KYC utility is a promise for a
faster, economical solution. Such centralised
utilities come in many forms, and have been
helping the financial services industry to be
more efficient and accurate for decades. Stock
exchanges and clearing and settlement houses
are long-standing examples where market
players share information for mutual benefit
through a trusted central counterparty. These
bodies also encourage the harmonisation of
standards and procedures, further encouraging
efficiency and lower costs.
Individual and corporate clients sharing data
in a highly secure, centralised utility would
work in a similar way for KYC. It would mean
that investment firms would no longer have to
conduct duplicate tasks in-house, but it would
also improve quality, as a more rounded picture
of each client could be created. Changes to
international watch-lists of criminals, terrorists
and politically exposed persons would be taken
into account by the utility. This information
would prevent firms from onboarding
inappropriate people, and alerts would warn
of a change in an existing client’s status.
Costs down, accuracy up
Accuracy would increase as costs fall. As well,
financial industry players would cut the risk of
inadvertently breaching fast-changing rules.
Communication with regulators would also
be improved as systems would be aligned and
reporting automated. Businesses could focus
more on their core activities of serving their
trusted clients. And regulators and governments
would appreciate the greater efficiency across
the whole industry.
THE ROUTE TO LOWER KYC COSTS
Know your customer (KYC) and due-diligence procedures remain some of the
most costly regulatory requirements that the Luxembourg fund industry, and
more broadly businesses across the financial sector, face today. Yet this is in
spite of the decade and a half that has passed since global lawmakers began
to put in place rules to fight money laundering and terrorism financing. In this
article, we explore what considerations fund industry participants might take
onboard to better help them move towards decreasing the rising complexity
and associated costs of such bottom-line concerns.